After a four-day trial, a national consumer bankruptcy law firm and its local partner attorneys were sanctioned and enjoined by the U.S. Bankruptcy Court for the Western District of Virginia for causing “unconscionable” harm to their clients. The court found that the law firm and its attorneys, among other things, systematically engaged in the unauthorized practice of law, provided inadequate representation to consumer debtor clients, and promoted and participated in a scheme to convert auto lenders’ collateral and then misrepresented the nature of that scheme, Director Cliff White of the Executive Office for U.S. Trustees announced today.

On Feb. 12, the U.S. Bankruptcy Court for the Western District of Virginia entered orders in two actions brought by the U.S. Trustee. The court sanctioned Law Solutions Chicago, doing business as “UpRight Law” (UpRight), and its principals $250,000; imposed additional sanctions of $50,000 against UpRight’s managing partner Kevin Chern, and $5,000 each against UpRight’s affiliated partner attorneys Darren Delafield and John C. Morgan Jr.; and ordered UpRight to disgorge all fees collected from the consumer debtors in both bankruptcy cases. The court also revoked UpRight’s bankruptcy filing privileges in the Western District of Virginia for not less than five years, and those of its local partners for 12 and 18 months, respectively. The bankruptcy court also sanctioned Sperro LLC (Sperro), an Indiana towing company that did not respond to the U.S. Trustee Program’s complaints, and ordered the turnover of all funds it received in connection with bankruptcy cases in the district.

“Lawyers who inadequately represent consumer debtors harm not only their clients, but also creditors and the integrity of the bankruptcy system,” said Director White. “The damage caused increases exponentially when they operate nationally, like UpRight. This case is demonstrative of the vigorous enforcement actions that the U.S. Trustee Program can and will take to protect all stakeholders in the bankruptcy process.”

According to trial testimony and evidence presented in court, UpRight operates a website offering legal services to consumers in financial distress. Prospective clients contact UpRight via the Internet and are routed to UpRight’s sales agents. These non-attorney “client consultants” were trained to “close” prospective clients by using high-pressure sales tactics and improperly provided legal advice to encourage them to file for bankruptcy relief. In many instances, UpRight arranged payment plans for its prospective clients to pay bankruptcy-related attorney’s fees and costs over time, and refused to refund fees it collected from its clients for whom UpRight did not file a bankruptcy case. The bankruptcy court found that UpRight had “serious oversight issues” in failing to adequately supervise its salespeople to prevent their unauthorized practice of law, and that UpRight demonstrated a “focus on cash flow over professional responsibility.”

Additionally, UpRight worked in concert with Sperro to implement a program through which UpRight’s clients could have their bankruptcy legal fees paid through a “New Car Custody Program.” The bankruptcy court described the New Car Custody Program as “a scam from the start.” UpRight’s salespeople and attorneys counseled bankruptcy clients to “surrender” vehicles fully encumbered by auto lenders’ liens to Sperro without the lienholders’ consent, and enter into an agreement obligating the clients to pay Sperro the costs of towing the vehicle, transporting it across state lines – often over a long distance – and storing it. UpRight assured its debtor clients that they would not have to pay any fees to Sperro, and in some instances advised its clients to hide their vehicles from lenders looking to repossess them until Sperro could pick up the vehicles.

After Sperro took a vehicle, it asserted a statutory “warehouseman’s lien,” claiming the right to keep the vehicle until the sham towing, transportation, and storage fees were paid. Then it offered the vehicle for sale at auction, despite the auto lender’s continuing security interest. Out of the sale proceeds, Sperro paid the debtor client’s bankruptcy fees directly to UpRight. Sperro kept the rest of the sale proceeds. In some cases, UpRight prepared bankruptcy court filings omitting the debtor clients’ transactions with Sperro.

The “New Car Custody Program” harmed auto lenders by converting collateral in which they had valid security interests. And the bankruptcy court found that UpRight “preyed upon some of the most vulnerable in our society” – its debtor clients – “while they were under great stress” by providing “unconscionable” advice to participate in the Sperro scheme, exposing them to undue risk by causing them to possibly violate the terms of their contracts with their auto lenders as well as state laws.

Director White commended the trial team of Assistant U.S. Trustee Margaret Garber and Trial Attorneys Joel Charboneau, Nick Foster and Joan Swyers for their handling of these matters.

The U.S. Trustee Program is the component of the Justice Department that protects the integrity of the bankruptcy system by overseeing case administration and litigating to enforce the bankruptcy laws. The Program has 21 regions and 92 field office locations. Learn more information on the Program at: https://www.justice.gov/ust.